As a homeowner or investor in New Zealand, it’s crucial to stay ahead of the game and make informed decisions, especially during a recession. That’s why we wanted to share some valuable insights and strategies to help you navigate the current economic landscape and maximize your property investments and mortgages.
Economic Overview
New Zealand has officially entered a technical recession, marked by two consecutive quarters of negative GDP growth. However, it’s important to note that over the past 12 months, the GDP remains positive at 2.20%. Taking inflation into account, the economy has experienced a decline of -4.50% in real terms, which is worth considering when evaluating your investment strategies.
Impact on Income Growth
While we expect incomes to keep pace with inflation, they have fallen short, with only 4.3% annual income growth. Adjusting for inflation translates to a net loss of 2.4%. This highlights the need to be mindful of your financial planning and explore alternative avenues for income growth.
Property Market Insights
According to REINZ, the property market has retraced back to its February 2021 levels, representing an 18.7% decrease from its peak across the country. While this presents challenges, it also creates opportunities for buyers and homeowners. As the market stabilizes, it’s a great time to consider your options and position yourself strategically.
Impact on Interest Rates
Interest rates play a significant role in property investments and mortgages. Currently, long-term mortgage rates are steadily falling, while short-term rates have risen following recent OCR increases. It’s crucial to assess the pros and cons of fixed-rate terms and find the best fit for your financial goals and risk tolerance.
Navigating the Lending Market
The lending landscape has also experienced shifts. People are borrowing less due to the rise in interest rates, and banks now apply stricter stress tests, increasing the minimum rates for assessing borrowing from around 6% to an average of 9%. Additionally, there have been changes in assessing expenses, focusing more on ongoing expenses rather than scrutinizing every detail. The RBNZ has also made it easier to access low-deposit funding, which can provide opportunities for investment and growth.
Property & Mortgage Strategies to Deploy:
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Seize the Buyer’s Market
With property prices falling and market sentiment cautious, it’s an opportune time for buyers. Get your finance approved early and consider placing offers on multiple properties to gauge vendor expectations and negotiate favorable deals. -
Manage Interest Rate Risk
Interest rate averaging is an effective technique to mitigate the impact of fluctuating mortgage rates. By diversifying your fixed-rate periods, you can take advantage of lower rates upon renewal and safeguard against potential rate increases. -
Prioritize Principal & Interest
Opting for principal and interest repayments helps manage interest rate risks. As a portion of your repayment goes toward reducing the principal, it minimizes the impact of rate fluctuations and accelerates your equity growth over time. -
Stress Test Your Finances
Recessions are temporary, and it’s crucial to weather the storm. Assess your financial situation, create a budget, and identify areas where you can make adjustments. Banks are willing to assist genuine cases of financial hardship, but it’s prudent to proactively manage your finances. -
Protect with Insurance
As the household budget tightens, ensure your personal insurances are in place. Insurance acts as a safety buffer, safeguarding against unexpected shocks and providing peace of mind during uncertain times.
Remember, these strategies are just the tip of the iceberg. If you’re interested in exploring more options or need tailored advice for your unique circumstances, we’re here to help. We can provide valuable insights and financing expertise, personalized advice to navigate the challenges of the recession, and help you make informed decisions regarding your property and mortgages.
Don’t miss out on the opportunity to thrive in the current market. Reach out to our Twine advisers today and take the next steps toward securing your financial future.
